BACKGROUND
The International Financial Services Centre Authority ('IFSCA'), in its 42nd meeting held on 19 December 2024, had approved a proposal to review the existing IFSCA (Fund Management) Regulations, 2022 which were notified in April 2022 ('FME Regulations 2022'). The key proposals introduced in the meeting, were based on the experience gained and feedback received from market participants through exhaustive consultation process undertaken by IFSCA.
Pursuant to the above consultative process and in line with the proposals approved by the IFSCA in December 2024, the IFSCA has now notified the IFSCA (Fund Management) Regulations, 2025 ('FME Regulations 2025') on February 19, 2025, which would replace the IFSCA (Fund Management) Regulations, 2022.
The major focus of the review exercise has been to usher in further ease of doing business, clarify the intent of regulatory provisions, wherever required, and introduce safeguards as are deemed necessary for the protection of investors' interest.
The Key reforms have been tabulated below :
A COMPARATIVE ANALYSIS
| Category | FME Regulation 2022 | FME Regulations 2025 | Key change/ Impact |
|---|---|---|---|
A. Family Investment Funds |
|||
| Registration as Authorised FME | Family Investment Funds ('FIF') investing in securities, financial products and such other permitted asset classes required to seek registration as an Authorised FME | The FMEs to be set up by a Single Family which shall manage its FIF for investing in financial products including securities and such other permitted asset classes | Requirement for FIFs to also have a separate FME entity (registered with IFSCA as Authorised FME) |
| Definition of FIF | A self-managed fund pooling money from a single family. | A fund pooling money only from a single family under one or more investment vehicles and has been set up in terms of these regulations | 'Single family' definition also widened |
| Categorization of FIF | No such provision | The FIF may be construed as a Category I AIF, Category II AIF or Category III AIF depending on the investment strategy | |
| Additional investment vehicles setup by FIF | No such provision | FIF may set up additional investment vehicles in the form of companies, LLPs, trusts or any other form specified by IFSCA | |
| B. Manpower Requirements for FMEs | |||
| Approval for appointment of KMP | Prior approval of IFSCA required | Only an intimation to IFSCA shall suffice | |
| Appointment of additional KMP (in additional to Principal officer and Compliance officer) | Only Registered FME (Retail) required to appoint additional KMP for fund management | FMEs managing an AUM of at least USD 1 Billion (excluding an AUM of a Fund of Fund) required to appoint an additional KMP within 6 months from the end of the financial year (certain exceptions provided) | Measure to administer a stringent governance for large value FMEs |
| Educational Qualification for KMPs of FMEs |
KMPs of FMEs to have :
|
|
Pool of eligible candidates for KMP position to widen |
| Minimum experience criteria for KMPs of FMEs | Minimum experience of 5 years required for the principal officer and other KMPs (includes compliance officer as well) in related activities in the securities market or financial products including in a portfolio manager, broker dealer, investment advisor, wealth manager, research analyst or fund management |
Number of years of experience reduced from 5 years to 3 years
for compliance officer provided such compliance officer possesses a
professional qualification and has experience in compliance or risk
management in a listed company or an entity regulated by a
financial sector regulator |
Reduction of experience requirement for compliance officer is a welcome move and should widen the candidate base for these positions |
| Certification requirements for employees of FME | No such requirements | IFSCA to specify the institutions from where certifications shall be obtained | To be prescribed |
| C. Non-Retail Schemes and Retail Schemes | |||
| Minimum corpus of the scheme | UDS 5 Mn | USD 3 Mn | Amendments in line with the IFSCA press release dated 19 December 2024 |
| Additional relaxation for OpenEnded Schemes to commence investment activities | No such provisions |
|
|
| Validity of Scheme's PPM | 6 months from the date of filing PPM with IFSCA or the date of observation letter of IFSCA, whichever is later | 12 months from the date of IFSCA's communication regarding PPM being taken on record | More time provided to FMEs to raise the minimum corpus of USD 3 Mn to facilitate the ease of doing fund management activities in IFSC |
| Definition of Fund of funds ('FOF') | Scheme investing primarily in other schemes, whether in IFSC/India/ foreign jurisdictions | Scheme that invests in
other schemes except to the extent of funds required for meeting
expenses, hedging or liquidity requirements for the purpose of repurchases, redemptions and distribution, as disclosed in the offer document |
|
| D. Non-Retail Schemes (Venture Capital Schemes and Restricted Schemes) | |||
| Maximum contribution by FME / it's associates in a scheme | 10% of the targeted corpus |
100% investment permitted provided :
|
Amendments in line with the IFSCA press release dated 19 December 2024; albeit conditions prescribed now |
| Joint Investment | No such provision | FME may accept investments from multiple investors acting as joint investor (with specified relationships) provided each investor invests the minimum prescribed investment amount | |
| Investment by open ended Restricted schemes in unlisted securities | Maximum investment in unlisted securities restricted to 25% of corpus | No maximum limit for open-ended 'Fund of funds' scheme, if such scheme invests in other open-ended scheme(s), which do not have more than 25% of corpus invested in unlisted securities | Additional flexibility provided to open ended schemes |
| Restrictions on buying and selling securities from associates / other schemes of FME / major investors | No such restrictions existed | Not permitted to
buy/ sell securities from Associates or other schemes of FME /
Associates or an investor who has committed to invest at least 50%
of its corpus, unless prior approval from 75% investors in the Scheme by value is obtained Approval not required for an FOF scheme which has disclosed in its PPM, the details of underlying schemes where such investments are intended to be made and the nature of association that the FME has with such managers |
Measure intended to mitigate transactions which may not be in the best interest of the investors |
| Valuation of assets (applicable for retail schemes as well) | Valuation of assets to be undertaken by independent third-party service provider such as fund administrators; Custodian registered with IFSCA, Valuer registered with Insolvency and Bankruptcy Board of India |
|
|
| Additional conditions for Cat I / II / III AIFs | No such provision | A Restricted scheme filed with the IFSCA as a Category I AIF, Category II AIF or Category III AIF shall invest in accordance with such additional conditions as may be specified by the IFSCA | Additional conditions to be prescribed |
| E. Registered FME (Retail) and Retail Schemes | |||
| Requirement of Sound track record | FME or
holding company to have minimum 5 years in managing AUM of at least
USD 200 Mn with more than 25,000 investors At least 1 person in control of the FME holding more than 25% shareholding in the FME to be carrying on the business in financial services for at least 5 years |
5 years criteria to be
evaluated considering the experience of FME / holding company or
their subsidiaries Criteria of a person in control of the FME holding more than 25% shareholding in the FME revised and additional net worth criteria introduced |
Facilitating a flexibility entry to new entrants with investment advisory background |
| Investment restrictions | Several relaxations and exemptions provided in investment related conditions to provide operational flexibility to funds | ||
| Investment in Associate entities | Maximum investment in associate entities permissible up to 25% of the AUM | Exemption provided in case of FOF scheme, subject to appropriate disclosures in the offer document | |
| Listing of close-ended Retail Schemes | Mandatory listing on a recognized stock exchange | Requirement of listing made optional if minimum amount of investment by each investor in the scheme is at least USD 1000 | Reduces the compliance burden |
| F. Portfolio Management Services (PMS) | |||
| Minimum investment amount from clients | USD 150,000 | USD 75,000 | Intended to increase the client base for PMS service providers |
| Dealing with client funds | Funds of clients can be maintained in specific bank account of FME in IFSC banking unit or specific bank account of the client in an IFSC banking unit, a bank in India or a foreign jurisdiction | Additional flexibility provided to maintain funds in a specific account of the client maintained with a regulated broker dealer in IFSC, or an equivalent entity in India or foreign jurisdiction (subject to certain safeguards) | Facilitates further expansion of PMS and broker dealer activities in IFSC |
| Category | FME Regulation 2022 | FME Regulations 2025 |
|---|---|---|
| G. Other Key Matters | ||
| Appointment of custodian in IFSC |
Custodian mandatorily required to be appointed for Retail schemes,
open ended restricted schemes and other schemes with AUM > USD
70 mn. No window of 12 months to comply with this requirement |
Schemes required to appoint custodian in IFSC and having custodian outside IFSC mandated to appoint a custodian in IFSC within 12 months from the date of notification of these regulations |
| Opening branch / representative office of FME in other jurisdictions | No such provision | In order to aid in the global expansion of their operations, FMEs have been permitted to open branches or representative offices in other jurisdictions for the purpose of marketing their offerings and client service, without requiring any prior approval from IFSCA (an intimation to IFSCA considered as a sufficient compliance) |
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
